Those receiving the reductions will see their mortgage balance cut to their homes current market value, as opposed to the other banks in the settlement that cannot cut principal by over 120 percent of the homes value.
For some deeply underwater borrowers, this may result in reductions of more than $100,000.
According to the Wall Street Journal, Bank of America has struck a side deal to allow the bank to reduce penalties in exchange for larger cuts to borrowers mortgage balances.
Fitch Ratings responded to the news stating that the 200,000 principal reductions will be neutral to negative for some RMBS bondholders and potentially beneficial for the bank.
Bank of America principal reductions to average over $100,000: Bank of America has cut a side deal after #social.
Fitch suggests the loans most likely to qualify for the extended principal reductions will be those originated between 2005 and 2007.
The proper figures to consider were buried in a table that DeMarco included in his analysis: Writing down principal balances on underwater loans held by Fannie would cut taxpayer losses by $28 billion compared with taking no action.
Because the bank has already reserved for penalties, any reversals could help BACs income going forward, Fitch stated.
While the agreement will help the bank reduce the amount of penalties it owes over time, the aggregate best case benefit is moderate from a financial perspective.
Bank of America will reportedly make bigger cuts than other banks to avoid up to $850 million in penalties, giving 200,000 homeowners the option to reduce the balances owed on their mortgages.
Steve Branson is a business journalist based in London, UK. Steve has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Steve spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.